IRA for a First Home Purchase

The IRS allows a little-known tax benefit for first-time home purchases through your IRA account, although the IRS exemption guidelines for a traditional IRA and a Roth IRA are slightly different. The maximum for a one-time, penalty-free distribution per person is $10,000 for a first-time home purchase or for building a home.

If you take the distribution from a traditional IRA, you will have to pay income tax on the money; distributions from a Roth IRA are tax-free (as this investment was originally made with post-tax dollars). With the Roth IRA, the investment account must be at least five years old before it can be tapped for this qualified distribution.

You should always consider any withdrawal from an IRA very carefully and you should discuss any withdrawals with your tax professional. There can be a real opportunity cost to not having that money working to build your liquid retirement wealth.

Building Your Equity

After you have scrimped and saved and made your first home purchase, congratulations—not only are you a homeowner, you are also building equity in your home.

As you pay your mortgage, each month you own more of the property. Over time, your property value may also increase, which adds to your equity as well. If and when you sell your first home, chances are your next down payment will be larger than the sum you started with. It’s just one way to build your wealth.